It is now official: the French government has created two certifications tools for financial-product that integrate Environmental, Social and Governance (ESG) criteria. The decree establishing the SRI label was issued on 10 January. It follows on another, published in the Journal Officiel on 11 December 2015, creating the Energy and Ecological Transition for Climate Label. Now comes the selection of the labelling organisations, the identification of the applicant funds, and the promotion of these new labels beyond the sphere of specialists.
French finance minister Michel Sapin and environment minister Ségolène Royal.
12 January 2016. Three years after the idea of creating an SRI label for the financing of the energy transition was raised, that idea has become a reality. Indeed, there are now two certification systems for financial-product that integrate environmental and social criteria – a concrete step forward eighteen months after the banking and finance conference of June 2014.
The announcement that a government-backed SRI label would be created was made by finance minister Michel Sapin during the SRI Week in autumn 2015. The decree published on 10 January sets forth the procedures for implementing this label, whose purpose is "to bring about compliance with a set of criteria aimed at making economic performance compatible with positive social and environmental impacts through the financing of companies and public entities that contribute to sustainable development, whatever their activity may be."
To qualify for certification, financial products will have to meet standards defined by the finance ministry. Among other things, a fund must exclude 20% of its initial investment universe on the basis of ESG criteria, or the average ESG rating of a portfolio must be higher than the rating of the benchmark index used to measure its financial performance.
Asset managers that want to obtain the public SRI label for one or more of their products will have to choose a labelling organisation among those that will be approved by the French Accreditation Committee (COFRAC).
The label will be awarded for a three-year period, during which follow-up certification audits will be conducted. Based on Novethic surveys, there are potentially 300 SRI funds available on the French market.
The Energy and Ecological Transition for Climate Label (TEEC) is different in nature. It has been created "to spotlight the investment funds that finance the green economy, to spur the creation of new funds, and to encourage companies to report the 'green share" of their activities".
This label created at the urging of sustainable development minister Ségolène Royal was established by decree on 11 December 2015. A call for expression of interest to designate the future labelling organisations will run until the end of January.
Following this initial selection process, the labelling organisations will also have to be approved by the COFRAC. The TEEC certification scheme will identify products that genuinely finance activities with measurable environmental benefits and defines the eco-sectors in which these products must be invested. These range from transport and renewable energies to waste management and energy efficiency.
This label is also remarkable because of the exclusions it requires, i.e. activities having to do with "the exploration, production and use of fossil fuels as well as the entire nuclear industry".
A third component of this French government policy is the implementation decree for Article 173 of the Energy Transition Act. Published on 31 December 2015, it defines the reporting requirements for asset owners with regard to the application of Environmental, Social and Governance criteria in their financial management, with climate risk the leading issue.
The impact of these initiatives on French financial operators will be closely analysed by the various stakeholders, starting with NGOs, which are wondering if these labels and reporting requirements for asset owners will be enough to mobilise the amounts of assets needed to finance the energy transition.
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